14 Dec 2021
Regulatory themes in 2022
We can never predict market disruptors such as Covid-19, which have set the tone in regulation for nearly two years. However, in the regulatory space we are able to draw upon two particular sources to illuminate the way ahead: these are the FCA’s business plan and the UK Regulatory Initiatives Grid.
When we combine these with what we already know about market and governmental priorities, we can begin to plan for the future, even amid uncertainty. It is clear that the volume and pace of change in 2022 will be high. However, the outcomes will be enhanced consumer protection, a more competitive and resilient market, and strengthened standards on ‘hot topic’ issues such as ESG.
The Business Plan
The FCA’s business plan, published in July 2021, sets out a clear strategy: alongside the focus on consumer protection and enhancing market integrity, there is a desire to become a more assertive, innovative, and adaptive regulator. There is also a clear steer in terms of consumer protection: the FCA makes numerous references to its ongoing work on the duty of care, with new rules to be published in mid-2022. The consumer investment strategy, published in September, goes hand in hand with this, and we know we can expect further emphasis on growing the market for consumer investments, while making it safer and more attractive to do so.
The FCA was also clear on climate change. This is now a key part of its remit, and the focus will be on ‘deep dives’ into portfolios, and driving forward new regulation on, for example, disclosures. Focus will turn to the credibility, assurance and transparency of ESG claims made in prospectuses and marketing material: the UK’s Green Taxonomy and the Sustainability Disclosure Requirements are two particular initiatives to watch. Enhancing the governance and oversight of ESG will reduce the risk of consumer harm. A credible, transparent market in green finance will also strengthen the UK’s global reputation as a leading jurisdiction for responsible investing.
Diversity and inclusion is a growing regulatory priority, and we have seen the publication of a discussion paper on enhancing diversity outcomes at, for example, board level. Given the FCA’s enhanced attention on diversity in the business plan, we can expect the regulator to be reviewing responses to the discussion paper particularly closely, with further announcements expected soon. There may also be more requests for information on diversity-related matters and more bilateral, thematic engagement on this topic.
The Regulatory Initiatives Grid
An even clearer picture appears when the business plan is coupled with the regulatory initiatives grid. This is a relatively new document, which emerged from the regulatory framework review. Firms had fed back to UK regulators that there would be benefit in having a timeline of all the key upcoming regulatory developments, such as policy statements, consultations, and discussion papers, in one place, to help with planning ahead, and its introduction has been hugely beneficial.
From this, we get a sense of the volume of activity on the horizon: the grid maps 134 developments. However, while the volume may create an ‘operational burden’ in the short term, this will ultimately support the development of a more streamlined and efficient regulatory regime.
Continuity and conclusions
A number of the developments represent a continuation of initiatives developed in 2021, with momentum continuing to grow. Next steps are set out in terms of developments such as operational resilience, and the Investment Firms Prudential Regime, for example.
Work on the Long Term Asset Fund will continue into 2022, and we know from the grid that we can expect further consultations in terms of widening the scope and ironing out additional areas such as registration of assets, valuation and assessment without qualification: this is just the beginning for LTAFs.
There is a high volume of ESG initiatives as the UK gears up to operationalise next steps in areas such as sustainability disclosures, TCFD reporting and the green taxonomy. COP26 was a highlight in the regulatory calendar in 2021, with the hard work of implementing a number of the proposed changes being a priority throughout 2022.
The grid does not provide all the answers however. The FCA has been vocal in terms of the risks associated with cryptoassets, for example, and the government, earlier in 2021, had issued a call for views on stabletokens. However, it has not always been possible to provide specific dates for these, besides acknowledgment that outputs will be published ‘in due course’. We are, in other words, still in the early stages of a comprehensive policy response to this emerging area of opportunity and risk.
We also know that the government is considering how to enhance the competitiveness of the UK as a funds domicile. The call for input on the future of the UK funds regime was issued in early 2021 and the conclusions of this exercise are still to be released. Ultimately, this exercise is also likely to generate downstream regulatory activity, but for now we are still waiting to see what the outcome of 2021’s review will be.
A roadmap for change
There is acknowledgment that the regulatory agenda will continue to be a heavy one in 2022, but this will allow regulators to chart a course towards a more efficient, resilient and competitive regime.
The Grid and the Strategy provide much-needed transparency in terms of what is on that agenda, and therefore what to expect. And this, in turn, will help firms to prepare, plan ahead, and engage as we enter another busy year.
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